Fixing the Highway Trust Fund

The American highway system desperately needs an overhaul. 63,000 bridges in need of “significant repair.” Traffic congestion costing $124 billion annually, $78 billion in direct costs of time and fuel. The American Society of Civil Engineers gave the nation’s road system a D grade in its annual report. There is no denying that our highway transportation system is in dire straits. Healthy infrastructure, including roads, is critical to a strong, long-term economy according to the World Bank. The government, both at the federal and state level, has failed in accomplishing one its essential responsibilities: maintaining a robust road network.

The problem with highway infrastructure is two-fold: the amount of money being allocated to highways and how that money is being spent. At the federal level, an 18.4 cents per gallon tax is levied on gasoline across the country along with excise taxes on other fuel and related products, with the money deposited in the Highway Trust Fund (HTF). Gasoline and diesel fuel taxes comprise 87% of the HTF’s annual revenue. At the local level, various gasoline and other taxes are leveled on drivers for the state’s or municipal’s own highway fund. However, a large percentage of the HTF goes to state and local jurisdictions (38% and 35% respectively).

This redistribution of funds encourages money to be spent inefficiently and wastefully. For the evidence, look no further than the “Road to Nowhere,” which saw over $25 million in federal funds spent on a dead-end road that would have connected with the “Bridge to Nowhere.” The “Road” was built after the “Bridge” had been cancelled because Alaska Governor Sarah Palin would have had to return the funds to the federal government. According to the Center for American Progress (CAP), $10 billion of the $43 billion distributed from the Highway Trust Fund in 2010 were sent to state and local projects that did “not demonstrate sufficient need through the traditional needs based funding formulas.” In general, state and local government are incentivized to use all the money available, even if it means wasteful spending or inefficient projects, otherwise they would lose it.

The current federal redistribution system gives Congress the power to dictate specific regulations and standards for state and local roads. Federal law, including the Davis-Bacon Act, often requires local governments to fulfill additional requirements that cause federally-funded local projects’ cost to increase by up to ten percent.
This can add unnecessary costs and burdens for local governments because the needs and requirements of one state can differ from another.

A further concern for state and local governments is an unfair federal distribution of funds to the states that shifts money from those who need funds to those who do not. According to CAP, some states’ residents “lose” hundreds of millions of dollars when the federal government divides the HTF among the states. These states, such as California and New York, see their tax money spent in other states.

Money is also misspent on non-highway projects such as “bicycle and walking paths, sidewalks, [and] community preservation initiatives” that cost taxpayers $809 million in fiscal year 2013. The Highway Trust Fund, specifically taxing drivers, should be used for what it says: highways.

The other half of the highway infrastructure problem is the level of funding sufficient to address the incredible needs listed in the beginning of this column. In recent years, public spending in highway and bridge construction as a percentage of GDP has declined dramatically and is far below the average for the decade, according to the Washington Post.

Additionally, the gasoline tax is in serious trouble. The Hill reports that gasoline tax revenue has fallen far short of even this limited spending by about $16 billion per year. The American Association of State Highway and Transportation Officials provides the following, very discouraging outlook. They project further shortfalls in revenue, in part due to a decline in vehicle miles traveled. The purchasing power of the gasoline tax has also declined 37% since 1993, the last time it was increased. It is evident that Congress will have to keep adding funds from other sources to make up the differences between gas revenues and highway expenses.

What can be done to address these significant problems?

First, the federal gasoline and excise taxes should only be used to fund specific federal highway projects (ex. Interstate systems). This prevents the federal government from distributing tax money unfairly among the states as well as removing the redundancy of sending over 70% of the HTF back to the states. This leaves the federal government to focus on federal projects only. By cutting off funding to the states, the federal government can actually reduce its own tax and make the states responsible for themselves.

Next, states will have to raise their own taxes to make up for the lost funding (thus federal taxes decline, state taxes rise). This result will force states to be more prudent with their own money. It keeps the money local, meaning that it is easier for: taxpayers to see where their money is going, politicians to be held accountable, and states to be flexible in their planning. If California wants more road construction, they can charge a high gas tax and apportion the money as it sees fit; however, if Wyoming does not want or need as many improvements, they can adopt a lower tax. States and local jurisdictions know the needs of their citizens better than politicians and bureaucrats in Washington D.C. This solution keeps the money and decisions local, meaning more efficient and effective government and highway construction.

This shift from federal to local will obviously take time; the federal government will have to specify when it will stop funding, and what projects it will be funding. The sum of the two taxes will probably increase, even with the improved efficiency. Current spending outpaces revenue and current spending is simply not enough for an adequate highway system. The aforementioned problems with the real value of the gas tax means that citizens will have to pay more for these improvements.

Finally, governments on all levels should collaborate with industry experts to prioritize projects, innovate, and share information to revolutionize the transportation network. Government has the power and industry has the expertise to innovate and improve the American highway system.

Though American highways need significant improvement, it is hardly an insurmountable problem. Americans innovate, they work hard, they solve, they accomplish. All it takes now is determined leadership to get started and improve the nation’s highways for the better.

About The Author

Matt Dragonette is a junior Accounting & Government/Politics double major at the University of Maryland. He has interned on Capitol Hill and writes for the campus newspaper, The Diamondback. Matt also co-hosts a sports radio show, The Amateur Hour, airing on the campus sports radio station. He can be reached at mdragonette9@yahoo.com